Energous Corp 10-K

Item 8. Financial Statements and Supplementary Data. 29 Energous Corporation INDEX TO FINANCIAL STATEMENTS Page(s) Report of Independent Registered Public Accounting Firm 31 Balance Sheets as of December 31, 2020 and 2019 33 Statements of Operations for the years ended December 31, 2020 and 2019 34 Statement of Changes in Stockholders’ Equity for the years ended December 31, 2020 and 2019 35 Statements of Cash Flows for the years ended December 31, 2020 and 2019 36 Notes to Financial Statements 37 30 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Energous Corporation Opinion on the Financial Statements We have audited the accompanying balance sheets of Energous Corporation (the “Company”) as of December 31, 2020 and 2019, the related statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate. 31 Capital Transactions Description of the Matter As discussed in Note 7 to the financial statements, the Company sold shares and raised net proceeds of $53,556,202. The Company will rely on these proceeds to fund the Company’s operations for the near future. Based on the significant dollar amount, significant disclosures and use of capital raises to fund its operations, capital transactions is considered to be a critical audit matter. How We Addressed the Matter in Our Audit The primary procedures we performed to address this critical audit matter included the following. We reviewed terms and provisions of the At Market Issuance Sales Agreement. We tested the net proceeds raised, shares sold to underlying stock transfer documents and confirmed share amounts to stock transfer agent. /s/ Marcum llp Marcum llp We have served as the Company’s auditor since 2013. Melville, NY March 24, 2021 32 Energous Corporation BALANCE SHEETS As of December 31, 2020 December 31, 2019 ASSETS Current assets: Cash and cash equivalents $ 50,729,661 $ 21,684,089 Accounts receivable, net 75,850 63,144 Prepaid expenses and other current assets 636,702 450,231 Total current assets 51,442,213 22,197,464 Property and equipment, net 402,711 626,524 Right-of-use lease assets 1,293,291 2,057,576 Other assets 1,610 2,410 Total assets $ 53,139,825 $ 24,883,974 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,096,839 $ 1,671,519 Accrued expenses 1,576,287 2,063,097 Operating lease liabilities, current portion 825,431 722,291 Deferred revenue 12,000 12,000 Total current liabilities 3,510,557 4,468,907 Long-term liabilities: Operating lease liabilities, long-term portion 576,762 1,402,193 Total liabilities 4,087,319 5,871,100 Commitments and contingencies Stockholders’ equity: Preferred Stock, $ 0.00001 par value, 10,000,000 shares authorized at December 31, 2020 and December 31, 2019; no shares issued or outstanding — — Common Stock, $ 0.00001 par value, 200,000,000 and 50,000,000 shares authorized at December 31, 2020 and December 31, 2019, respectively; 61,292,412 and 33,203,806 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively. 614 333 Additional paid-in capital 344,024,638 282,153,201 Accumulated deficit ( 294,972,746 ) ( 263,140,660 ) Total stockholders’ equity 49,052,506 19,012,874 Total liabilities and stockholders’ equity $ 53,139,825 $ 24,883,974 The accompanying notes are an integral part of these financial statements. 33 Energous Corporation STATEMENTS OF OPERATIONS For the Year Ended December 31, 2020 2019 Revenue $ 327,350 $ 200,143 Operating expenses: Research and development 17,066,122 23,228,810 Sales and marketing 5,880,350 5,418,967 General and administrative 9,153,503 10,360,266 Cost of services revenue 126,539 — Total operating expenses 32,226,514 39,008,043 Loss from operations ( 31,899,164 ) ( 38,807,900 ) Other income (expense): Interest income, net 71,212 416,274 Loss on disposal of property and equipment ( 4,134 ) ( 7,463 ) Total other income 67,078 408,811 Net loss $ ( 31,832,086 ) $ ( 38,399,089 ) Basic and diluted loss per common share $ ( 0.76 ) $ ( 1.27 ) Weighted average shares outstanding, basic and diluted 41,639,916 30,262,642 The accompanying notes are an integral part of these financial statements. 34 Energous Corporation STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY Common Stock Additional Total Shares Amount Paid-in Capital Accumulated Deficit Stockholders’ Equity Balance, January 1, 2019 26,526,303 $ 265 $ 243,111,741 $ ( 224,741,571 ) $ 18,370,435 Stock-based compensation - restricted stock units (“RSUs”) — — 10,190,211 — 10,190,211 Stock-based compensation - employee stock purchase plan (“ESPP”) — — 368,021 — 368,021 Stock-based compensation - performance share units (“PSUs”) — — 88,348 — 88,348 Issuance of shares for RSUs 1,110,817 11 ( 11 ) — — Shares withheld for payroll tax on RSUs ( 1,329 ) — ( 10,207 ) — ( 10,207 ) Shares withheld for payroll tax on PSUs ( 44,481 ) — ( 329,159 ) — ( 329,159 ) Shares returned ( 38,666 ) — — — — Exercise of stock options 80,201 1 400,102 — 400,103 Shares purchased from contributions to the ESPP 178,003 2 457,360 — 457,362 Issuance of shares and warrants in a private placement, net of $ 1,680,844 in issuance costs 3,333,333 33 23,319,123 — 23,319,156 Issuance of shares in an at-the-market ("ATM") placement, net of $ 339,081 in issuance costs 2,059,625 21 4,557,672 — 4,557,693 Net loss — — — ( 38,399,089 ) ( 38,399,089 ) Balance, December 31, 2019 33,203,806 333 282,153,201 ( 263,140,660 ) 19,012,874 Stock-based compensation - restricted stock units (“RSUs”) — — 7,656,857 — 7,656,857 Stock-based compensation - employee stock purchase plan (“ESPP”) — — 329,461 — 329,461 Stock-based compensation - performance share units (“PSUs”) — — ( 88,348 ) — ( 88,348 ) Issuance of shares for RSUs 1,194,439 12 ( 12 ) — — Shares purchased from contributions to the ESPP 275,312 3 417,543 — 417,546 Issuance of shares in an at-the-market ("ATM") placement, net of $ 1,545,139 in issuance costs 26,618,855 266 53,555,936 — 53,556,202 Net loss — — — ( 31,832,086 ) ( 31,832,086 ) Balance, December 31, 2020 61,292,412 $ 614 $ 344,024,638 $ ( 294,972,746 ) $ 49,052,506 The accompanying notes are an integral part of these financial statements. 35 Energous Corporation STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2020 2019 Cash flows from operating activities: Net loss $ ( 31,832,086 ) $ ( 38,399,089 ) Adjustments to reconcile net loss to: Net cash used in operating activities: Depreciation and amortization 356,310 781,228 Stock based compensation 7,897,970 10,646,580 Change in operating lease right-of-use assets 764,285 786,342 Bad debt expense 21,377 35,000 Loss on disposal of property and equipment 4,134 7,463 Changes in operating assets and liabilities: Accounts receivable ( 34,083 ) ( 53,594 ) Prepaid expenses and other current assets ( 186,471 ) 130,809 Other assets 800 — Accounts payable ( 574,680 ) ( 189,866 ) Accrued expenses ( 486,810 ) 284,748 Operating lease liabilities ( 722,291 ) ( 662,766 ) Deferred revenue — 12,000 Net cash used in operating activities ( 24,791,545 ) ( 26,621,145 ) Cash flows used in investing activities: Purchases of property and equipment ( 136,631 ) ( 196,199 ) Net cash used in investing activities ( 136,631 ) ( 196,199 ) Cash flows from financing activities: Net proceeds from the sales of common stock — 23,319,156 Net proceeds from an at-the-market ("ATM") offerings 53,556,202 4,557,693 Proceeds from the exercise of stock options — 400,103 Proceeds from contributions to employee stock purchase plan 417,546 457,362 Shares repurchased for tax withholdings on vesting of RSUs — ( 10,207 ) Shares repurchased for tax withholdings on vesting of PSUs — ( 329,159 ) Net cash provided by financing activities 53,973,748 28,394,948 Net increase in cash and cash equivalents 29,045,572 1,577,604 Cash and cash equivalents - beginning 21,684,089 20,106,485 Cash and cash equivalents - ending $ 50,729,661 $ 21,684,089 Supplemental disclosure of non-cash financing activities: Common stock issued for RSUs $ 12 $ 11 The accompanying notes are an integral part of these financial statements. 36 ENERGOUS CORPORATION Notes to Financial Statements Note 1 – Business Organization, Nature of Operations Energous Corporation (the “Company”) was incorporated in Delaware on October 30, 2012. The Company has developed its WattUp® technology, consisting of proprietary semiconductor chipsets, software, hardware designs and antennas, that enables radio frequency (“RF”) based charging for electronic devices, providing wire-free contact and non-contact charging solutions, with the potential to enable charging with mobility. The Company believes its proprietary WattUp technology can be utilized in consumer electronics such as wearables, hearing aids, earbuds, Bluetooth headsets, Internet of Things (“IoT”) devices, smartphones, tablets, e-book readers, keyboards, mice, remote controls, rechargeable lights, cylindrical batteries, medical devices and other devices with charging requirements that would otherwise require battery replacement or wired power connection. Note 2 – Liquidity and Management Plans During the years ended December 31, 2020 and 2019, the Company has recorded revenue of $ 327,350 and $ 200,143 , respectively. The Company incurred a net loss of $ 31,832,086 and $ 38,399,089 for the years ended December 31, 2020 and 2019, respectively. Net cash used in operating activities was $ 24,791,545 and $ 26,621,145 for the years ended December 31, 2020 and 2019, respectively. The Company is currently meeting its liquidity requirements through the proceeds of securities offerings that raised net proceeds of $ 53,556,202 during 2020 and $ 4,557,693 during the fourth quarter of 2019, along with payments received under product development projects. As of December 31, 2020, the Company had cash on hand of $ 50,729,661 . The Company expects that cash on hand as of December 31, 2020, together with anticipated revenues, will be sufficient to fund the Company’s operations into March 2022. Research and development of new technologies is by its nature unpredictable. Although the Company intends to continue its research and development activities, there can be no assurance that its available resources and revenue generated from its business operations will be sufficient to sustain its operations. Accordingly, the Company expects to pursue additional financing, which could include offerings of equity or debt securities, bank financings, commercial agreements with customers or strategic partners, and other alternatives, depending upon market conditions. There is no assurance that such financing would be available on terms that the Company would find acceptable, or at all. The market for products using the Company’s technology is broad and evolving, but remains nascent and unproven, so the Company’s success is dependent upon many factors, including customer acceptance of its existing products, technical feasibility of future products, regulatory approvals, competition and global market fluctuations. Note 3 – Summary of Significant Accounting Policies Basis of Presentation The accompanying financial statements are presented in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements as well as the reported expenses during the reporting periods. 37 Note 3 – Summary of Significant Accounting Policies, continued Use of Estimates continued The Company’s significant estimates and assumptions include the valuation of stock-based compensation instruments, recognition of revenue, the useful lives of long-lived assets and valuation of deferred tax assets. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. Although the Company believes that its estimates and assumptions are reasonable, they are based upon information available at the time the estimates and assumptions were made. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all short-term, highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents. The Company maintains cash balances that may be uninsured or in deposit accounts that exceed Federal Deposit Insurance Corporation limits. The Company maintains its cash deposits with major financial institutions. Revenue Recognition On January 1, 2018, the Company adopted Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" (Topic 606). In accordance with Topic 606, the Company recognizes revenue using the following five-step approach: 1. Identify the contract with the customer. 2. Identify the performance obligations in the contract. 3. Determine the transaction price of the contract. 4. Allocate the transaction price to the performance obligations of the contract. 5. Recognize revenue when the performance obligations are met or delivered. The Company’s revenue primarily consists of product development projects revenue and royalty revenue from Dialog. The Company also provides contract services for Dialog. During the year ended December 31, 2020, the Company recognized $ 197,350 in product development projects revenue, $ 0 in royalty revenue and $ 130,000 in contract services revenue. During the year ended December 31, 2019, the Company recognized $ 193,043 in product development projects revenue, $ 7,100 in royalty revenue and $ 0 in contract services revenue. The Company records revenue associated with product development projects that it enters into with certain customers. In general, these product development projects are complex, and the Company does not have certainty about its ability to achieve the project milestones. The achievement of a milestone is dependent on the Company’s performance obligation and requires acceptance by the customer. The Company recognizes this revenue at a point in time based on when the performance obligation is met. The payment associated with achieving the performance obligation is generally commensurate with the Company’s effort or the value of the deliverable and is nonrefundable. The Company records the expenses related to these product development projects in research and development expense, in the periods such expenses were incurred. The Company records royalty revenue from its manufacturing partner, Dialog, and such royalty revenue is recognized at a point in time based on shipments from Dialog to its customers. The Company recognizes contract services revenue from Dialog over the period of time that the services are performed. The costs associated with this revenue are recognized as the services are performed and are included in cost of services revenue. 38 Note 3 – Summary of Significant Accounting Policies, continued Research and Development Research and development expenses are charged to operations as incurred. For internally developed patents, all patent application costs are expensed as incurred as research and development expense. Patent application costs, which are generally legal costs, are expensed as research and development costs until such time as the future economic benefits of such patents become more certain. The Company incurred research and development costs of $ 17,066,122 and $ 23,228,810 for the years ended December 31, 2020 and 2019, respectively. Stock-Based Compensation The Company accounts for equity instruments issued to employees in accordance with accounting guidance that requires awards to be recorded at their fair value on the date of grant and are amortized over the vesting period of the award. The Company recognizes compensation costs on a straight line basis over the requisite service period of the award, which is typically the vesting term of the equity instrument issued. Under the Company’s Employee Stock Purchase Plan (“ESPP”), employees may purchase a limited number of shares of the Company’s stock at a 15 % discount from the lower of the closing market prices measured on the first and last days of each half-year period. The Company recognizes stock-based compensation expense for the fair value of the purchase options, as measured on the grant date. Income Taxes Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of December 31, 2020, no liability for unrecognized tax benefits was required to be reported. The guidance also discusses the classification of related interest and penalties on income taxes. The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense. No interest or penalties were recorded during the years ended December 31, 2020 and 2019. The Company files income tax returns with the United States and California governments. Net Loss Per Common Share Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants (using the treasury stock method), the vesting of restricted stock units (“RSUs”) and performance stock units (“PSUs”) and the enrollment of employees in the ESPP. The computation of diluted loss per share excludes potentially dilutive securities of 5,256,942 and 6,739,639 for the years ended December 31, 2020 and 2019, respectively, because their inclusion would be antidilutive. 39 Note 3 – Summary of Significant Accounting Policies, continued Net Loss Per Common Share continued Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive. For the Years Ended December 31, 2020 2019 Warrants issued to private investors 3,284,789 3,938,802 Options to purchase common stock 550,985 550,985 RSUs 1,421,168 1,821,852 PSUs — 428,000 Total potentially dilutive securities 5,256,942 6,739,639 Leases As of January 1, 2019, the Company determines if an arrangement is a lease at the inception of the arrangement. The Company applies the short-term lease recognition exemption and recognizes lease payments in profit or loss at lease commencement for facility or equipment leases that have a lease term of 12 months or less and do not include a purchase option whose exercise is reasonably certain. Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liabilities. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are measured and recorded at the later of the adoption date, January 1, 2019, or the service commencement date based on the present value of lease payments over the lease term. The Company uses the implicit interest rate when readily determinable; however, most leases do not establish an implicit rate, so the Company uses an estimate of the incremental borrowing rate based on the information available at the time of measurement. Lease expense for lease payments is recognized on a straight-line basis over the lease term. See Note 6 – Commitments and Contingencies, Operating Leases for further discussion of the Company’s operating leases. Recent Accounting Pronouncements In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740),” Simplifying the Accounting for Income Taxes . ASU 2019-12 removes certain exceptions under Topic 740 and improves consistent application by clarifying and amending existing guidance. This standard is effective for annual reporting periods beginning after December 15, 2020. The Company does not believe adoption of this standard will have a material impact on its financial statements. Management’s Evaluation of Subsequent Events The Company evaluates events that have occurred after the balance sheet date of December 31, 2020, through the date which the financial statements are issued. 40 Note 4 – Property and Equipment Property and equipment are as follows: As of December 31, 2020 2019 Computer software $ 862,343 $ 917,499 Computer hardware 2,012,041 2,442,369 Furniture and fixtures 508,371 517,864 Leasehold improvements 776,563 776,563 4,159,318 4,654,295 Less – accumulated depreciation ( 3,756,607 ) ( 4,027,771 ) Total property and equipment, net $ 402,711 $ 626,524 The Company currently uses the following expected life terms for depreciating property and equipment: computer software – 1 - 2 years , computer hardware – 3 years, furniture and fixtures – 7 years, leasehold improvements – remaining life of the lease. The Company disposed of $ 631,608 and $ 1,205,962 in property and equipment during the years ended December 31, 2020 and 2019, respectively. Total depreciation and amortization expense of the Company’s property and equipment was $ 356,310 and $ 781,228 for the years ended December 31, 2020 and 2019, respectively. Note 5 – Accrued Expenses Accrued expenses consist of the following: As of December 31, 2020 2019 Accrued compensation $ 1,246,151 $ 1,097,997 Accrued research and development — 524,861 Accrued legal expenses 205,579 253,730 Other accrued expenses 124,557 186,509 Total $ 1,576,287 $ 2,063,097 Note 6 – Commitments and Contingencies Operating Leases San Jose Lease On July 1, 2019, the Company signed a new lease agreement for the lease of its office space at its corporate headquarters in San Jose, California for an additional three years . The lease agreement includes space on the first floor of the building that had been previously subleased. Upon expiration of the original lease on September 30, 2019, the new monthly lease payment starting October 1, 2019 was $ 52,970 and is subject to annual escalations up to a maximum monthly lease payment of $ 64,941 . 41 Note 6 – Commitments and Contingencies, continued Operating Leases, continued Costa Mesa Lease On July 15, 2019, the Company signed a new lease agreement for the lease of office space in Costa Mesa, California for an additional two years . Upon expiration of the original lease on September 30, 2019, the new monthly lease payment starting October 1, 2019 was $ 9,773 and is subject to an annual escalation up to a maximum monthly lease payment of $ 10,200 . Operating Lease Commitments In February 2016, the FASB issued its final standard on lease accounting, ASU No. 2016-02, “Leases (Topic 842),” which superseded Topic 840, “Leases,” which was further modified in ASU No. 2018-10, “Codification Improvements” to clarify the implementation guidance. The new accounting standard was effective for the Company beginning on January 1, 2019 and required the recognition on the balance sheet of right-of-use assets and lease liabilities. The Company elected the optional transition method and adopted the new guidance on January 1, 2019 on a modified retrospective basis with no restatement of prior period amounts. The Company’s adoption of the new standard resulted in the recognition of right-of-use assets of $ 414,426 and operating lease liabilities of $ 485,747 , with no material cumulative effect adjustment to equity as of the date of adoption. The Company anticipates having future total lease payments of $ 1,447,668 during the period from the first quarter of 2021 to the third quarter of 2022. As of December 31, 2020, the Company has total operating lease right-of-use assets of $ 1,293,291 , current portion operating lease liabilities of $ 825,431 and long-term portion of operating lease liabilities of $ 576,762 . The weighted average remaining lease term is 1.7 years as of December 31, 2020. The future minimum lease payments for leased locations are as follows: For the Year Ended December 31, Amount 2021 $ 863,199 2022 584,469 Total future lease payments 1,447,668 Present value discount (4% weighted average) ( 45,475 ) Total operating lease liabilities $ 1,402,193 Hosted Design Solution Agreement On June 25, 2015, the Company entered into a three-year agreement to license electronic design automation software in a hosted environment. Pursuant to the agreement, under which services began July 2015, the Company is required to remit quarterly payments in the amount of approximately $ 101,000 with the last payment due March 30, 2018. On December 18, 2015, the agreement was amended to redefine the hardware and software configuration and the quarterly payments increased to approximately $ 198,000 . In July 2018, the Company renewed the agreement for an additional three years , and the Company is required to remit quarterly payments of approximately $ 218,000 , with the last payment due in March 2021. 42 Note 6 – Commitments and Contingencies, continued Litigations, Claims, and Assessments The Company is from time to time involved in various disputes, claims, liens and litigation matters arising in the normal course of business. While the outcome of these disputes, claims, liens and litigation matters cannot be predicted with certainty, after consulting with legal counsel, management does not believe that the outcome of these matters will have a material adverse effect on the Company's combined financial position, results of operations or cash flows. MBO Bonus Plan On March 15, 2018, the Company’s Board of Directors (“Board”), on the recommendation of the Board’s Compensation Committee (“Compensation Committee”), approved the Energous Corporation MBO Bonus Plan (“Bonus Plan”) for executive officers of the Company. To be eligible to receive a bonus under the Bonus Plan, an executive officer must be continuously employed throughout the applicable performance period, and in good standing, and achieve the performance objectives selected by the Compensation Committee. Under the Bonus Plan, the Compensation Committee is responsible for selecting the amounts of potential bonuses for executive officers, the performance metrics used to determine whether any such bonuses will be paid and determining whether those performance metrics have been achieved. During the years ended December 31, 2020 and 2019, the Company recognized a total of $ 1,305,723 and $ 1,048,375 , respectively, in expense under the Bonus Plan. As of December 31, 2020, $ 438,745 of the 2020 amount was not yet paid and is included in accrued expenses. Severance and Change in Control Agreement On March 15, 2018, the Compensation Committee approved a form of Severance and Change in Control Agreement (“Severance Agreement”) that the Company may enter into with executive officers (“Executive”). Under the Severance Agreement, if an Executive is terminated in a qualifying termination, the Company agrees to pay the Executive six to 12 months of that Executive’s monthly base salary. If Executive elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) the Company will pay the full amount of Executive’s premiums under the Company’s health, dental and vision plans, including coverage for the Executive’s eligible dependents, for the six to 12 month period following the Executive’s termination. Amended Employee Agreement – Stephen Rizzone On April 3, 2015, the Company entered into an Amended and Restated Executive Employment Agreement with Stephen R. Rizzone, the Company’s President and Chief Executive Officer (“Employment Agreement”). The Employment Agreement effective as of January 1, 2015 , has an initial term of four years and automatically renews each year after the initial term. The Employment Agreement provides for an annual base salary of $ 365,000 , and Mr. Rizzone is eligible to receive quarterly cash bonuses from the MBO Bonus Plan with a total target amount equal to 100 % of his base salary based upon achievement of performance-based objectives established by the Board. Mr. Rizzone is also eligible to receive all customary and usual benefits generally available to senior executives of the Company. 43 Note 6 – Commitments and Contingencies, continued Strategic Alliance Agreement In November 2016, the Company and Dialog Semiconductor plc (“Dialog”), a related party (see Note 10—Related Party Transactions), entered into a Strategic Alliance Agreement (“Alliance Agreement”) for the manufacture, distribution and commercialization of products incorporating the Company’s wire-free charging technology (“Licensed Products”). Pursuant to the terms of the Alliance Agreement, the Company agreed to engage Dialog as the exclusive supplier of the Licensed Products for specified fields of use, subject to certain exceptions (the “Company Exclusivity Requirement”). Dialog agreed to not distribute, sell or work with any third party to develop any competing products without the Company’s approval (the “Dialog Exclusivity Requirement”). In addition, both parties agreed on a revenue sharing arrangement and will collaborate on the commercialization of Licensed Products based on a mutually-agreed upon plan. Each party will retain all of its intellectual property. The Alliance Agreement has an initial term of seven years and will automatically renew annually thereafter unless terminated by either party upon 180 days’ prior written notice. The Company may terminate the Alliance Agreement at any time after the third anniversary of the Agreement upon 180 days’ prior written notice to Dialog, or if Dialog breaches certain exclusivity obligations. Dialog may terminate the Alliance Agreement if sales of Licensed Products do not meet specified targets. The Company Exclusivity Requirement will terminate upon the earlier of January 1, 2021 or the occurrence of certain events relating to the Company’s pre-existing exclusivity obligations. The Company Exclusivity Requirement renews automatically on an annual basis unless the Company and Dialog agree to terminate the requirement. Note 7 – Stockholders’ Equity Authorized Capital The holders of the Company’s common stock are entitled to one vote per share. Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the board of directors out of legally available funds. Upon the liquidation, dissolution or winding up of the Company, holders of common stock are entitled to share ratably in all assets of the Company that are legally available for distribution. Financing On August 9, 2018, the Company filed a shelf registration statement on Form S-3, which became effective on August 17, 2018. This shelf registration statement allows the Company to sell, from time to time, any combination of debt or equity securities described in the registration statement up to aggregate proceeds of $ 75,000,000 . Pursuant to this registration statement, in March 2019 the Company raised $ 23,319,156 (net of $ 1,680,844 in issuance costs) from an offering of shares of its common stock and warrants to purchase 1,666,666 shares of common stock at an exercise price of $ 10.00 per share. The Company also raised $ 4,557,693 (net of $ 339,081 in issuance costs) during the fourth quarter of 2019, $ 5,506,880 (net of $ 141,322 in issuance costs) during the first quarter of 2020 and $ 9,216,611 (net of $ 236,528 in issuance costs) during the second quarter of 2020, pursuant to this shelf registration statement. On September 15, 2020, the Company filed a shelf registration statement on Form S-3 with the SEC, which became effective on September 24, 2020, and contains two prospectuses: a base prospectus, which covers the offering, issuance and sale by the Company of up to $ 75,000,000 of its common stock, preferred stock, debt securities, warrants to purchase our common stock, preferred stock or debt securities, subscription rights to purchase its common stock, preferred stock or debt securities and/or units consisting of some or all of these securities; and a sales agreement prospectus covering the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $ 40,000,000 of its common stock that may be issued and sold under a sales agreement. The $40,000,000 of common stock that may be offered, issued and sold under the sales agreement prospectus is included in the $75,000,000 of securities that may be offered, issued and sold by the Company under the base prospectus. Pursuant to this shelf registration statement, the Company sold shares which raised net proceeds of $ 38,832,711 (net of $ 1,167,289 in issuance costs) during the third and fourth quarter of 2020. 44 Note 7 – Stockholders’ Equity continued Common Stock Outstanding Our outstanding common shares typically include shares that are deemed delivered under US GAAP. Shares that are deemed delivered currently include shares that have vested, but have not yet been delivered, under tax-deferred equity awards, as well as shares purchased under our Employee Stock Purchase Program (“ESPP”) where actual transfer of shares normally occurs a few days after the completion of the purchase periods. There are no voting rights for shares that are deemed delivered under US GAAP until the actual delivery of shares takes place. On July 24, 2020, the stockholders of the Company approved an increase of common shares authorized from 50,000,000 shares to 200,000,000 shares. In August 2019, an aggregate of 38,666 shares of common stock were returned to the Company and retired in connection with the rescission of restricted stock unit agreements. Note 8 – Stock Based Compensation Equity Incentive Plans 2013 Equity Incentive Plan Effective on May 26, 2020, the Company’s stockholders approved the amendment and restatement of the 2013 Equity Incentive Plan to increase the number of shares reserved for issuance thereunder by 1,200,000 shares, bringing to 7,285,967 the total number of shares approved for issuance under that plan. As of December 31, 2020, 1,867,169 shares of common stock remain eligible to be issued through equity-based instruments under the 2013 Equity Incentive Plan. 2014 Non-Employee Equity Compensation Plan Effective on May 26, 2020, the Company’s stockholders approved the amendment and restatement of the 2014 Non-employee Equity Compensation Plan to increase the number of shares reserved for issuance through equity-based instruments thereunder by 800,000 shares, bringing to 1,650,000 the total number of shares approved for issuance under that plan. As of December 31, 2020, 998,971 shares of common stock remain eligible to be issued through equity-based instruments under the 2014 Non-Employee Equity Compensation Plan. 2015 Performance Share Unit Plan Effective on May 26, 2020, the Company’s stockholders approved the amendment and restatement of the 2015 Performance Share Unit Plan to increase the number of shares reserved for issuance through equity-based instruments thereunder by 700,000 shares, bringing to 3,410,104 the total number of shares approved for issuance under that plan. As of December 31, 2020, 2,131,951 shares of common stock remain eligible to be issued through equity-based instruments under the 2015 Performance Share Unit Plan. 45 Note 8 – Stock Based Compensation, continued Equity Incentive Plans, continued 2017 Equity Inducement Plan On December 28, 2017, the Board approved the 2017 Equity Inducement Plan. Under the plan, the Board reserved 600,000 shares for the grant of RSUs. These grants will be administered by the Board or a committee of the Board. These awards will be granted to individuals who (a) are being hired as an Employee by the Company or any Subsidiary and such Award is a material inducement to such person being hired; (b) are being rehired as an Employee following a bona fide period of interruption of employment with the Company or any Subsidiary; or (c) will become an Employee of the Company or any Subsidiary in connection with a merger or acquisition. As of December 31, 2020, 139,276 shares of common stock remain available to be issued through equity-based instruments under the 2017 Equity Inducement Plan. Employee Stock Purchase Plan In April 2015, the Company’s Board approved the ESPP, under which 600,000 shares of common stock have been reserved for purchase by the Company’s employees, subject to approval by the stockholders. On May 21, 2015, the Company’s stockholders approved the ESPP. Effective on May 26, 2020, the Company’s stockholders approved the amendment and restatement of the Employee Stock Purchase Plan to increase the number of shares reserved for issuance through equity-based instruments thereunder by 250,000 shares, bringing to 850,000 the total number of shares approved for issuance under that plan. Under the ESPP, employees may designate an amount not less than 1 % but not more than 10 % of their annual compensation for the purchase of Company shares. No more than 7,500 shares may be purchased by an employee under the ESPP during an offering period. An offering period shall be six months in duration commencing on or about January 1 and July 1 of each year. The exercise price of the option will be the lesser of 85 % of the fair market of the common stock on the first business day of the offering period and 85 % of the fair market value of the common stock on the applicable exercise date. As of December 31, 2020, 140,438 shares of common stock remain eligible to be issued under the ESPP. For the year ended December 31, 2020, eligible employees contributed $ 417,546 through payroll deductions to the ESPP and 275,312 shares were deemed delivered for the year ended December 31, 2020. For the year ended December 31, 2019, eligible employees contributed $ 457,362 through payroll deductions to the ESPP and 178,003 shares were deemed delivered for the year ended December 31, 2019. Stock Option Award Activity The following is a summary of the Company’s stock option activity during the year ended December 31, 2020: Number of Options Weighted Average Exercise Price Weighted Average Remaining Life In Years Intrinsic Value Outstanding at January 1, 2020 550,985 $ 5.67 4.3 $ 2,538 Granted — — — — Exercised — — — — Forfeited — — — — Outstanding at December 31, 2020 550,985 $ 5.67 3.2 $ 3,384 Exercisable at December 31, 2020 550,985 $ 5.67 3.2 $ 3,384 As of December 31, 2020, the unamortized value of options was $ 0 . The aggregate intrinsic value of options exercised was $ 0 and $ 55,940 for the years ended December 31, 2020 and 2019, respectively. No options were granted during the years ended December 31, 2020 and 2019. 46 Note 8 – Stock Based Compensation, continued Restricted Stock Units (“RSUs”) During the year ended December 31, 2020, the Compensation Committee of the Board (“Compensation Committee”) granted various employees RSUs under which the holders have the right to receive an aggregate 674,656 shares of common stock. The majority of these awards, granted under the 2013 Equity Incentive Plan, vest over terms ranging from two to four years . During the year ended December 31, 2020, the Compensation Committee granted various directors and consultants RSUs under which the holders have the right to receive an aggregate 142,953 shares of common stock. These awards were granted under the 2014 Non-Employee Equity Compensation Plan. The awards granted vest over terms from one to three years . During the year ended December 31, 2020, the Compensation Committee granted employees RSUs under which the holders have the right to receive 187,500 shares of common stock. The awards, granted under the 2017 Equity Inducement Plan, vest over four years beginning on the anniversary of the grant date. In accordance with ASC 505-50, the Company estimates the fair value of the unvested portion of the RSU award each reporting period using the closing price of the Company’s common stock. At December 31, 2020, the unamortized value of the RSUs was $ 4,467,049 . The unamortized amount will be expensed over a weighted average period of 1.3 years. A summary of the activity related to RSUs for the year ended December 31, 2020 is presented below: Total Weighted Average Grant Date Fair Value Outstanding at January 1, 2020 1,821,852 $ 10.05 RSUs granted 1,005,109 $ 1.68 RSUs forfeited ( 211,354 ) $ 7.82 RSUs vested ( 1,194,439 ) $ 7.71 Outstanding at December 31, 2020 1,421,168 $ 6.43 Performance Share Units (“PSUs”) Performance share units (“PSUs”) are grants that vest upon the achievement of certain performance goals. The goals are commonly related to the Company’s revenue, market capitalization or market share price of the common stock. During the year ended December 31, 2020, the Compensation Committee granted various employees PSUs under which the holders have the right to receive an aggregate 267,677 shares of common stock. These awards were granted under the 2015 Performance Share Unit Plan. The awards granted vest upon achievement of Company-wide revenue goals. Compensation expense amortization for all PSU awards was $( 88,348 ) and $ 88,348 for the years ended December 31, 2020 and 2019, respectively. 47 Note 8 – Stock Based Compensation, continued Performance Share Units (“PSUs”), continued At December 31, 2020, the unamortized value of all PSUs was $ 0 . A summary of the activity related to PSUs for the year ended December 31, 2020 is presented below: Total Weighted Average Grant Date Fair Value Outstanding at January 1, 2020 428,000 $ 2.09 PSUs granted 267,677 $ 1.27 PSUs forfeited ( 695,677 ) $ 1.77 PSUs vested — $ — Outstanding at December 31, 2020 — $ — Employee Stock Purchase Plan (“ESPP”) During the years ended December 31, 2020 and 2019, there were two offering periods per year for the ESPP. The first offering period started on January 1 of each year and concluded on June 30 of each year. The second offering period started on July 1 of each year and concluded on December 31 of each year. The weighted-average grant-date fair value of the purchase option for each designated share purchased under this plan was approximately $ 1.18 and $ 2.02 during the years ended December 31, 2020 and 2019, respectively, which represents the fair value of the option, consisting of three main components: (i) the value of the discount on the enrollment date, (ii) the proportionate value of the call option for 85 % of the stock and (iii) the proportionate value of the put option for 15 % of the stock. The Company recognized stock-based compensation expense for the plan of $ 329,461 and $ 368,021 for the years ended December 31, 2020 and 2019, respectively. The Company estimated the fair value of the purchase options granted during the years ended December 31, 2020 and 2019 using the Black-Scholes option pricing model. The fair values of the purchase options granted were estimated using the following assumptions: For the Year Ended December 31, 2020 Stock price range $ 1.77 – 2.96 Dividend yield 0 % Expected volatility range 61 – 182 % Risk-free interest rate range 0.17 – 1.57 % Expected life 6 months For the Year Ended December 31, 2019 Stock price range $ 4.27 – 5.79 Dividend yield 0 % Expected volatility range 83 – 96 % Risk-free interest rate range 2.10 – 2.53 % Expected life 6 months 48 Note 8 – Stock Based Compensation, continued Stock-Based Compensation Expense The following tables summarize total stock-based compensation costs recognized for years ended December 31, 2020 and 2019: For the Years Ended December 31, 2020 2019 RSUs $ 7,656,857 $ 10,190,211 PSUs ( 88,348 ) 88,348 ESPP 329,461 368,021 Total $ 7,897,970 $ 10,646,580 The total amount of stock-based compensation was reflected within the statements of operations as: For the Years Ended December 31, 2020 2019 Research and development $ 3,933,292 $ 5,419,627 Sales and marketing 1,504,724 1,561,319 General and administrative 2,459,954 3,665,634 Total $ 7,897,970 $ 10,646,580 Note 9 – Income Taxes On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. The CARES Act includes provisions relating to refundable payroll tax credits, net operating loss carryback periods, alternative minimum tax refunds, modifications to the net interest deduction limitations and technical corrections to the tax depreciation methods for qualified improvement property. The CARES Act has an immaterial impact on the Company’s income taxes. The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and establishes for all entities a minimum threshold for financial statement recognition of the benefit of tax positions and requires certain expanded disclosures. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax bases of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse. The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. As of December 31, 2020, the Company has recorded a full valuation allowance. 49 Note 9 – Income Taxes, continued As of December 31, 2020 and 2019, the Company’s deferred tax assets (liabilities) consisted of the effects of temporary differences attributable to the following: December 31, 2020 2019 Deferred tax assets: Research and development tax credits $ 8,371,302 $ 7,390,441 Net operating loss carryovers 57,563,810 47,460,988 Property and equipment 219,461 241,000 Research and development costs 12,578,612 15,083,114 Start-up and organizational costs 540 618 Stock-based compensation 4,041,136 3,420,667 Operating lease liability 245,811 594,507 Other accruals 270,912 276,512 Total gross deferred tax assets 83,291,584 74,467,847 Less: valuation allowance ( 82,929,675 ) ( 73,892,063 ) Total deferred tax assets 361,909 575,784 Deferred tax liabilities: Operating lease right-of-use asset ( 361,909 ) ( 575,784 ) Total deferred tax liabilities ( 361,909 ) ( 575,784 ) Total deferred taxes, net $ — $ — The change in the Company’s valuation allowance is as follows: 2020 2019 January 1, $ 73,892,063 $ 63,349,287 Increase in valuation allowance 9,037,612 10,542,776 December 31, $ 82,929,675 $ 73,892,063 The Company has federal and state net operating loss carryforwards of approximately $ 205,474,000 and $ 206,403,000 , respectively, available to offset future taxable income. The federal and state NOL carryforwards will expire at various dates beginning in 2034 . The Company has federal and state research and development tax credit carryforwards of approximately $ 5,092,000 and $ 4,151,000 , respectively. The federal R&D credit carryforwards will expire beginning in 2033 and state R&D credit carryforwards do not expire. The ultimate realization of the net operating loss is dependent upon future taxable income, if any, of the Company. Although management believes that the Company may have sufficient future taxable income to absorb the net operating loss carryforwards and research and development tax credit carryforwards before the expiration of the carryforward period, there may be circumstances beyond the Company’s control that limit such utilization. Accordingly, management has determined that a full valuation allowance of the deferred tax asset is appropriate at December 31, 2020 and 2019. 50 Note 9 – Income Taxes, continued Internal Revenue Code Section 382 imposes limitations on the use of net operating loss carryforwards when the stock ownership of one or more 5% stockholders (stockholders owning 5% or more of the Company’s outstanding capital stock) has increased on a cumulative basis by more than 50 percentage points. Management cannot control the ownership changes occurring as a result of public trading of the Company’s Common Stock. Accordingly, there is a risk of an ownership change beyond the control of the Company that could trigger a limitation of the use of the loss carryforward. The Company completed a Section 382 analysis as of December 31, 2020 and determined that none of its NOLs or R&D credits would be limited. For the Year Ended December 31, 2020 2019 Tax benefit at federal statutory rate ( 21.0 )% ( 21.0 )% State income taxes ( 6.7 ) ( 5.7 ) Permanent differences: Stock-based compensation 3.6 3.1 Meals and entertainment — 0.1 Executive compensation ( 1.2 ) 1.0 True-up of federal deferred taxes — ( 1.3 ) True-up of state deferred taxes 0.1 ( 0.1 ) Change in effective tax rate ( 0.1 ) — Research and development tax credit, federal ( 2.0 ) ( 2.1 ) Research and development tax credit, state ( 1.3 ) ( 1.4 ) Increase in valuation allowance, federal 20.6 20.2 Increase in valuation allowance, state 8.0 7.2 Effective income tax rate 0.0 % 0.0 % Note 10 – Related Party Transactions In November 2016, the Company and Dialog entered into an alliance agreement for the manufacture, distribution and commercialization of products incorporating the Company’s wire-free charging technology (See Note 6 – Commitments and Contingencies, Strategic Alliance Agreement ). On November 7, 2016 and June 28, 2017, the Company and Dialog entered into securities purchase agreements under which Dialog acquired a total of 1,739,691 shares and received warrants to purchase up to 1,417,565 shares. As of December 31, 2020, none of the warrants remain outstanding. Dialog presently owns approximately 2.8 % of the Company’s outstanding common shares. The Company recorded $ 0 and $ 7,100 in royalty revenue for the years ended December 31, 2020 and 2019, respectively, pursuant to the Strategic Alliance Agreement. Additionally, the Company recorded $ 130,000 and $ 0 in contract services revenue during the years ended December 31, 2020 and 2019, respectively. The Company also recorded related expenses of $ 126,539 and $ 0 in cost of services revenue during the years ended December 31, 2020 and 2019, respectively. 51 Note 11 – Unaudited Quarterly Financial Information Summarized quarterly information for the years ended December 31, 2020 and 2019 is listed below: For the quarter ended March 31 June 30 September 30 December 31 2020 Revenue $ 61,475 $ 114,375 $ 61,500 $ 90,000 Operating expenses $ 8,715,150 $ 8,327,015 $ 7,621,558 $ 7,562,791 Net loss $ ( 8,597,736 ) $ ( 8,204,666 ) $ ( 7,556,837 ) $ ( 7,472,847 ) Loss per share, basic and diluted $ ( 0.25 ) $ ( 0.20 ) $ ( 0.18 ) $ ( 0.15 ) 2019 Revenue $ 66,500 $ 47,500 $ 40,500 $ 45,643 Operating expenses $ 11,162,041 $ 9,994,156 $ 8,342,569 $ 9,509,277 Net loss $ ( 11,019,468 ) $ ( 9,803,996 ) $ ( 8,184,227 ) $ ( 9,391,398 ) Loss per share, basic and diluted $ ( 0.39 ) $ ( 0.32 ) $ ( 0.27 ) $ ( 0.29 ) Note 12 – Customer Concentration Three customers accounted for approximately 66 % of the Company’s revenue for the year ended December 31, 2020 and four customers accounted for approximately 52 % of the Company’s revenue for the year ended December 31, 2019. Four customers accounted for approximately 92 % of the Company’s accounts receivable balance as of December 31, 2020. Four customers accounted for nearly 100 % of the Company’s accounts receivable balance as of December 31, 2019. Note 13 – Subsequent Event On February 8, 2021, Renesas Electronics Corporation announced the planned acquisition of Dialog Semiconductor Corporation. The Company has a strategic agreement with Dialog (see Note 6 – Commitments and Contingencies, Strategic Alliance Agreement ). 52 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.